Administration Outlines Credit Ratings Overhaul

Continuing its push toward financial services reform, the Obama Administration delivered to Congress July 21 proposed legislation that would increase transparency, tighten oversight, and reduce reliance on credit rating agencies. The legislation is also designed to reduce conflicts of interest at credit rating agencies while also strengthening the Securities and Exchange Commission’s (SEC) authority and supervision of ratings agencies.

The Administration noted in a release announcing the proposed legislation that it fully supports the recent moves the SEC has made regarding credit ratings agencies. In February the SEC adopted several measures to increase the transparency of the rating agencies’ methodologies, strengthen disclosure of ratings performance, prohibit certain practices that create conflicts of interest, and enhance recordkeeping and reporting obligations to assist the SEC in performing its regulatory and oversight functions. The SEC has allocated resources to establish a branch of examiners dedicated specifically to conducting examination oversight of rating agencies. The SEC has proposed to require NRSROs to disclose, on a delayed basis, ratings history information for 100% of all issuer-paid credit ratings. The SEC has also proposed that each ratings agency should document its policies and procedures for the determination of ratings.

The Administration’s proposal would also establish a dedicated office within the SEC to strengthen supervision of ratings agencies and carry out regulatory actions. All credit ratings agencies would also have to register with the SEC under the Obama proposal.